Guest Post: A tale of two airlines and tech's role in the battle for customers

By Travolution

By Boyan Manev, vice-president business development and product marketing at airfare search solutions firm Vayant

It was the best of times, it was the worst of times. At least for two of Europe’s largest low-cost carriers, who are now looking to refresh the low-cost model as competition for the customer is set to intensify.

The rise of the low-cost carrier made millions of people into frequent flyers and shook up the airline market with powerful price-led offers and a no-frills approach to service.

In the drive to cut ticket prices, these innovative carriers basically invented the unbundled model, where everything beyond the point-to-point fare – from onboard meals to hold baggage and allocated seating – came as an optional extra: otherwise known as an ancillary.

The low fares enabled by unbundled ticketing won over passengers, particularly in the leisure market. And it certainly made a big impact on aviation, to the extent that the global industry is formally embracing ancillaries via the New Distribution Capability (NDC) process being pushed by Iata.

But in the rush to reduce ticket prices, one low-cost carrier, Ryanair, showed signs of leaving the customer behind. Ryanair took its price-led offer seriously, even [apparently] floating the idea of all-standing flights or charging passengers to use onboard toilets. Anything to push down the price of a basic fare.

Customers were prepared to sacrifice a degree of comfort for cheap flights and Ryanair’s unrelenting focus on low fares had propelled it to the status of Europe’s largest airline.

But it seems customers would only put up with so much (and, increasingly, they could find great value fares and a good end-to-end experience on network carriers and innovative hybrid models like Lufthansa-Germanwings).

In a sign that customers were falling out of love with Ryanair’s very aggressive price-led model, the carrier announced its first profit warning in a decade in September, quickly followed by a second profit warning.

In contrast, Ryanair’s rival easyJet was announcing a 51% jump in pre-tax profits – and it all came down to the customer.

While Ryanair had clung to its price-led positioning, easyJet had taken a different direction, introducing a number of customer-friendly innovations. First came allocated seating on all flights, fast-track security for holders of flexi-fare tickets and an attractive inspiration-driven online shop (InspireMe).

Together, these technology-enabled improvements meant easyJet’s customers could tailor a better travel experience, and be satisfied they were still getting a budget price. This gave the easyJet brand a new appeal to older and more affluent leisure and business customers: a profitable segment who previously refused to even contemplate flying easyJet.

The easyJet story shows that the low-cost carriers are opening a new front in the battle for the customer, introducing more choice and a more customer-shaped experience. (And where easyJet led, Ryanair is now following and has announced a raft of measures to make life easier for customers.)

As we’ve argued here before, NDC will move the whole aviation industry towards greater flexibility. Airlines will gain the ability to package and fine tune the customer experience with more precision than ever before, and offer it across more channels.

The growth opportunity is clear – but, as the tale of easyJet and Ryanair shows, to realise the opportunity airlines will need to take advantage of technology tools to deliver choice, value and quality.

Today’s demanding customers want more than a great price – they also want a great experience.

EasyJet posts 60% increase in profits

Nov 15, 2011 08:17AM GMT 

EasyJet has delivered a 60% rise in full year pre-tax profits to £248 million and is returning £195 million to shareholders.

The budget carrier, under pressure from founder and major shareholder Sir Stelios Haji-Ioannou over dividend payments, said it was making “tangible returns” to shareholders despite a £100 million hike in fuel costs.

Overall capacity rose by 11.5% due to network expansions from Gatwick and in France and Switzerland. Passenger numbers rose 11.8% to 54.5 million and load factor improved by 0.3 percentage points to 87.3%.

Total revenue grew by 16.1% to £3,452 million resulting in growth of 4.1% in revenue per seat to £55.27. Ancillary revenue rose by 12.9% to £11.52 per seat following “decisive management action” in the second quarter of the year.

Passengers originating outside of the UK now account for 56%, an increase of 3 percentage points compared with 2010.  Those flying on business increased by almost one million to 9.5 million

Underlying cost per seat fell by 1.3% for the full year with strong performances in ground handling, maintenance and disruption-related costs, the carrier said.

Chief executive Carolyn McCall said: “Despite the headwinds of higher fuel costs and a weak and uncertain economic outlook, our focus on customers, robust operational performance, the strength of EasyJet's network combined with cost control and capital discipline means that EasyJet is well placed to succeed.”

The airline took a swipe at government for reversing its election promise to turn Air Passenger Duty in to a per plane tax.

“Instead it is proposing to lower the tax on long-haul flights and increase it on short-haul flights,” EasyJet said. “Evidence shows this is both economically and environmentally damaging.

“Aviation's entry into the European Union Emissions Trading System means that there is no longer any environmental case for taxes on aviation.”

The airline also voiced concern over “monopoly infrastructure” airport and airspace providers across Europe which continue to impose higher charges despite the uncertain economic climate.

“Monopoly airports need to become more efficient, with infrastructure and associated charges built around the needs of passengers on point-to-point carriers such as easyJet. This will bring wider economic benefits by promoting tourism and trade,” EasyJet said.

Looking forward, the carrier said: “The macro-economic environment remains challenging for all airlines as weak consumer confidence across Europe slows the rate at which higher fuel prices and increased taxation can be passed onto passengers.

“Against this backdrop EasyJet is taking a cautious approach to capacity deployment.  As a result, capacity in the first half of the year is planned to be flat (adjusting for disruption in the first part of the prior year), with growth of around 4% for the full year.

“With around 45% of winter seats now sold, in line with the prior year, first half passenger revenue per seat is expected to grow by mid-single digits with planned improvement in yields, bag charges and other ancillary revenues.

“Cost per seat excluding fuel and currency impact is expected to grow by 2% to 3% for the full year and by 4% in the first half of the year, assuming normal levels of disruption, driven by price increases at regulated airports and investments in new revenue streams.

“At current fuel and exchange rates easyJet's fuel bill is anticipated to increase by £220 million in full year 2012 compared to full year 2011.

“Despite the headwinds of higher fuel costs and a weak and uncertain economic outlook, our focus on customers, robust operational performance, the strength of EasyJet's network combined with cost control and capital discipline means that EasyJet is well placed to succeed.”